How is accrued interest calculated?

Principal × annual rate × days ÷ the day-count basis the loan agreement names — 360 or 365. The agreement decides; using the wrong basis is a small, recurring misstatement.

Is accrued interest a current liability?

A current liability: it is due at the next payment date.

Journal entry for accrued interest

At month-end, debit Interest expense and credit Accrued interest for the interest earned by the lender since the last payment. When the payment is made, debit Accrued interest and credit Cash.

Loan balance: $250,000
Rate, actual/360: 8%
Accrued interest: $944.44
Entity: Illustrative company
Basis: Accrual
Currency: USD
Period: June – July 2026

The worked example

A $250,000 term loan bears 8% interest on an actual/360 basis, paid on the 14th of each month. At June 30, 17 days of interest have accrued since the last payment: $250,000 × 8% × 17 ÷ 360 = $944.44.

Adjusting entry · June 30, 2026

JE-130 Jun 2026Adjustingposted

Accrue interest since the June 14 payment.

Journal entry JE-1, 2 lines
Account	Debit	Credit
7000 Interest expense	944 US Dollar and 44 cents
2120 Accrued interest		944 US Dollar and 44 cents

Totals	944 US Dollar and 44 cents	944 US Dollar and 44 cents

Balanced.

Transaction · July 14, 2026

JE-214 Jul 2026Manualposted

Pay the interest that includes June's accrual.

Journal entry JE-2, 2 lines
Account	Debit	Credit
2120 Accrued interest	944 US Dollar and 44 cents
1000 Cash		944 US Dollar and 44 cents

Totals	944 US Dollar and 44 cents	944 US Dollar and 44 cents

Balanced.

What the entries do to the accounts

Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.

Net movement by account
Account	Debit	Credit
1000 Cash		944 US Dollar and 44 cents
7000 Interest expense	944 US Dollar and 44 cents

Totals	944 US Dollar and 44 cents	944 US Dollar and 44 cents

One account nets to zero across the entries and is not shown.

Why it is booked this way

Interest accrues every day the money is borrowed, whatever the payment schedule. The month carries the interest for its own days.

The day-count convention in the note is part of the arithmetic: actual/360 charges slightly more than actual/365 on the same rate, and the accrual should match what the lender will bill.

Common mistakes

Recording interest only when it is paid, so a quarterly-pay loan shows no interest for two months and three months' worth in the third.
Using a 365-day basis when the note says actual/360, which understates interest every month.

Questions

How is accrued interest calculated?: Principal × annual rate × days ÷ the day-count basis the loan agreement names — 360 or 365. The agreement decides; using the wrong basis is a small, recurring misstatement.
Is accrued interest a current liability?: A current liability: it is due at the next payment date.

Terms on this page

Work with this entry

The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.

An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.